Correlation Between Data Communications and Medical Facilities

Can any of the company-specific risk be diversified away by investing in both Data Communications and Medical Facilities at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Data Communications and Medical Facilities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Data Communications Management and Medical Facilities, you can compare the effects of market volatilities on Data Communications and Medical Facilities and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Data Communications with a short position of Medical Facilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Data Communications and Medical Facilities.

Diversification Opportunities for Data Communications and Medical Facilities

-0.76

Correlation Coefficient

Data Communications  Medical Facilities

Pay attention - limited upside

The 3 months correlation between Data and Medical is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Data Communications Management and Medical Facilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Facilities and Data Communications is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Data Communications Management are associated (or correlated) with Medical Facilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Facilities has no effect on the direction of Data Communications i.e., Data Communications and Medical Facilities go up and down completely randomly.

Pair Corralation between Data Communications and Medical Facilities

Assuming the 90 days trading horizon Data Communications Management is expected to generate 3.34 times more return on investment than Medical Facilities. However, Data Communications is 3.34 times more volatile than Medical Facilities. It trades about 0.12 of its potential returns per unit of risk. Medical Facilities is currently generating about -0.03 per unit of risk. If you would invest  197.00  in Data Communications Management on October 7, 2024 and sell it today you would earn a total of  17.00  from holding Data Communications Management or generate 8.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Data Communications Management  vs.  Medical Facilities

Data Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Data Communications Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Medical Facilities

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Medical Facilities are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Medical Facilities displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Data Communications and Medical Facilities

The main advantage of trading using opposite Data Communications and Medical Facilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Data Communications position performs unexpectedly, Medical Facilities can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Medical Facilities will offset losses from the drop in Medical Facilities' long position.

The idea behind Data Communications Management and Medical Facilities pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.